Life Insurance in retirement plan

[Guest jhilliard]

I had a question asked by an associate that I can't answer.

If a plan has life insurance and the plan is being terminated, what options do the participants that hold insurance in the plan have? Can they keep the insurance outside the plan? How do they do this?

Help

As a side note, I was just told the plan never reported the Insurance when filing with the IRS This makes my head spin! Fortunately the plan is NOT one of ours!

Any suggestions??????

[R. Butler]

If a plan has life insurance and the plan is being terminated, what options do the participants that hold insurance in the plan have?

1. Distribute the contract itself. There will be tax on the cash value less accumulated PS 58 costs. Generally mandatory withholding taken from other assets.

2. Participant can buy the contract from the Plan.

3. Surrender the contract and either roll the proceeds over or take a direct distribution.

[ccassetty]

one more: Take a maximum loan (less accumulated PS-58 costs) on the cash value of the contract. This loan value is rolled with the rest of the participant's account value. The policy is then distributed to the participant tax free but with the death benefit still available. However, the death benefit is reduced by the outstanding balance of the loan.